BAKU, Azerbaijan () -- Silver prices have also been climbing - 55%+ in the last 12 months. Some market watchers believe silver may be ripe for a further, sharp move upward as a large overhang of short positions is now deep underwater. Given the macroeconomic conditions, mark-to-market losses and margin calls, the scent of a massive round of short covering is in the air, and that would send silver prices up on a meteoric rise.
Mexico and Peru automatically spring to mind when silver mining is mentioned. And there are a host of TSX-listed companies actively exploring and developing silver mining projects south of the Rio Grande. Working in Zacatecas State, one of the world's richest known sources of silver ore, Arian Silver [TSX-V:AGQ] expects to bring its San Jose prospect into production by 2009. ECU Silver Mining [TSX-V:ECU] has made significant discoveries and has started processing ore from a group of seven mines in the Velardena district, another historically prolific source of gold, silver, lead and zinc.
Silver prices were fixed at a mid-market price of $20.82 in London on March 7, having risen 7.7% in the past month. Rather than indicating the formation of a speculative bubble, recent price action and market conditions indicate that silver is in the early to middle stages of a secular bull market, according to Dublin's Gold Investments. Prices have risen 330%+ in the last five years.
"Another clear indication that silver is far from a speculative mania rather in the early to middle stages of a secular bull market was seen in the fact that silver had its largest daily gain on a closing basis in memory and yet despite this the open interest actually fell. Again showing that speculative longs have not entered the market rather it is speculative shorts that have been exiting their humongous short position which is causing the price to surge," according to Gold Investments' March 7 market letter.
Gold Investments' analyst sees signs that a massive short covering may be in the making. "...Huge and unprecedented concentrated short positions in silver are being forced to cover their shorts and buy back silver in significant volumes. We could see the commercial shorts forced to panic cover en masse creating a massive surge in the silver (and gold) price. This eventuality is looking increasingly likely, especially in the light of the very significant macroeconomic and systemic risks facing the U.S. and many western economies.
"Silver has now surpassed the predicted high of most silver analysts in the world who have failed to realize the massive growing supply/demand imbalance in silver and how the humongous and unprecedented short position in silver would lead to prices being propelled to levels that may shock even silver's more bullish enthusiasts. This happens in most bull markets but will be a sight to behold in silver in the coming years."
Mining & Silver in Mexico
Mexico is the world's second-largest silver producer. Encouraged by 1990s changes in mining legislation that allow foreign companies to acquire 100% interests in mining operations, foreign miners helped pushed mining production to a record $7.2 billion in 2007, up from between $2-3 billion five years ago.
Mining companies invested a record $2.2 billion in Mexico last year according to official government figures. With only 20% of the country explored, the Mexico Mining Chamber of Commerce forecasts that some $20 billion will be invested in the country's mines by 2012.
Arian Silver on March 3, released an initial NI 43-101 inferred resource estimate for its San Jose property in the Tepal area of Zacatecas State. Results from only half the drill holes completed to date from 1.6 kilometres of a total estimated 12-plus km strike length from the San Jose Vein System returned an estimated 27.7 million ounces of silver, 64.6 million pounds of lead and 147.5 million pounds zinc.
Results from an additional 34 holes, along with holes currently being drilled as part of the company's Phase One programme, will cover a minimum 4 of a total 12-plus km strike length and will be modelled, reported and released in an updated resource statement later this year, according to company information.
Arian's wholly owned Mexican subsidiary, Arian Silver Mexico S.A. de C.V., holds an exclusive option to wholly acquire the San Jose Project. The Project concessions include the San Jose Mine, which was operated by a subsidiary of Penol'es from 1973 to 1991 and then by Monarca, which operated the mine between 1993 and 2001. The mine was closed in 2001 due to prevailing low silver prices after producing more than 2 million tonnes of ore averaging 250 grams/tonne silver.
An existing underground development ramp provides access to a 3-kilometre stretch of the San Jose Vein System. The western portion of the System, which extends more than 4 km, remains unexploited. Two other main vein structures are exposed and have not been explored using modern methods and tools.
Akin to Arian, ECU Silver Mining is exploring and developing resources in a historically rich and productive region of gold, silver and base mineral resources. Working properties in the Velardena District in Durango State that include five historic mines the Company has been producing mineralized stope material and processing it into lead and zinc concentrates at wholly owned milling facilities - two milling operations at Velarde~na and a wholly owned flotation mill in the Village of Velarde~na. ECU in Q3 2006 completed a pyrite processing circuit for enhanced recovery of gold and silver.
Management, in a March 4 media release, said that following metallurgical and processing tests of ore from its Santa Juana Mine, the company is now able and ready to zoom in on specific high-grade ore sections, refine mining methods and metallurgical process and take advantage of current market prices to finance ongoing exploration and development without further share dilution by resuming mining and milling operations at the Velardena mill. Ore processing has resumed and throughput is expected to reach 200 tonnes a day initially and 300 tonnes daily in Q2 this year.
Working its three main Velardena District Properties in central Mexico's Durango State - Velardena Main, Chicago and San Diego - while exploring a fourth, ECU Silver has expanded NI 43-101 compliant measured and indicated mineral resources 116% and inferred resources 121% in the past year. The company has amassed an NI 43-101 inventory from 32 mineral veins of 3.7 million tonnes (38 million ounces silver equivalent) measured and indicated, and 13.7 million tonnes (179 million ounces silver equivalent) inferred.
Management sees the potential to increase this substantially by adding an additional 550 to 960 million silver equivalent ounces. Doing so would make ECU majority owners of one of the world's largest gold and silver resources.
Velardena Main property consists of four interconnected mines- Santa Juana, San Juanes, San Mateo and Terneras. ECU began exploring the San Diego property approximately 10 kilometres northeast in Q3 2006 together with Golden Tag Resources Ltd. [TSX-V:GOG] and recently released positive results from an exploratory drilling program being conducted on the Terneras vein off the San Juanes mine that was previously believed to be barren.